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Weekly Wrap-UpJuly 20-24, 1998 |
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Weekly Wrap-UpJuly 20-24, 1998 |
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| TSE | Change | DJIA | Change | S&P | Change | Nasdaq | Change | |
| Monday | 7432.66 | 14.35 | 9,295.75 | -42.22 | 1,184.10 | -2.65 | 2,014.25 | 5.49 |
| Tuesday | 7409.43 | -23.23 | 9,190.19 | -105.56 | 1,165.07 | -19.03 | 1,979.14 | -35.11 |
| Wednesday | 7349.89 | -59.54 | 9,128.91 | -61.28 | 1,164.08 | -0.99 | 1,969.75 | -9.39 |
| Thursday | 7227.38 | -122.51 | 8,932.98 | -195.93 | 1,139.75 | -24.33 | 1,935.22 | -34.53 |
| Friday | 7170.58 | -56.80 | 8,937.36 | 4.38 | 1,140.80 | 1.05 | 1,930.99 | -4.23 |
| % Change | -3.34% | -247.73 | -4.29% | -400.61 | -3.87% | -45.95 | -3.87% | -77.77 |
| GOLD | Change | $CDN/$US | 30yr Cda | Change | 30yr US | Change | |
| Monday | 296.20 | 1.70 | 1.4878 | 5.51 | -4bps | 5.70 | -5bps |
| Tuesday | 295.00 | -1.20 | 1.4920 | 5.48 | -3bps | 5.66 | -4bps |
| Wednesday | 294.20 | -0.80 | 1.4954 | 5.50 | +2bps | 5.68 | +2bps |
| Thursday | 293.30 | -0.90 | 1.4955 | 5.50 | unch | 5.66 | -2bps |
| Friday | 290.90 | -2.40 | 1.4980 | 5.53 | +3bps | 5.67 | +1bps |
| % Change | -1.22% | -3.60 | - | -2 bps | -8 bps | ||
The North American bond markets benefitted from political uncertainty surrounding the election of a new Prime Minister in Japan, as well as a significant short-covering rally ahead of Federal Reserve Board Chairman Alan Greenspan's two-day testimony discussing the state of the US economy and monetary conditions. With no economic data of importance released this past week the two largely political events took the headline position for the bond markets on the week.
Federal Reserve Board Chairman Alan Greenspan's semi-annual testimony on the state of the US economy and monetary conditions continued to focus on the Board's underlying concern on the potential for inflationary pressures. The Fed Chairman focused on the greater likelihood of inflation re-emerging, than on the possibility of a protracted slow down as the result of depressed demand out of Asia.
In Japan, the Liberal Democrat Party elected former Foreign Minister Keizo Obuchi to the role of Party Leader, and de facto Prime Minister of Japan. Many observers feel that Mr. Obuchi is not charismatic enough to truly lead the LDP, and Japan, out of its current economic quagmire. The political resolve of the new leader to impose the tough fiscal reforms necessary to help Japan, and the rest of Asia, out of it's current recessionary state will be tested early if the new leader is to maintain support of the Party and the Japanese people.
On the data front, there was very little of substance for the markets to utilize for direction. In the US, housing starts were up 5.6% in June; building permits declined 1.7% in the same month. In Canada, wholesale sales in May were down 1.2%; inventories were unchanged; retail sales were +0.5%, +0.3% ex-autos.
The Canadian market underperformed the US market on the week due to the continued deterioration of the Canadian dollar versus the US currency. Critics feel that the Bank of Canada must raise interest rates to defend the currency, as a result the Canadian bond markets underperformed the US on speculation that the Bank of Canada's hand will be forced on the issue. The Canadian 30 year long-bond shed 2 basis points on the week to close the week at 5.53%, as a short-covering rally at the beginning of the week helped off-set the deterioration of the market as a result of the currency. The US market benefitted from the short-covering rally in the US ahead of the Fed speak, and flight to quality over concerns with the Asian situation. The US Treasury 30 year bond shed 8 basis points on the week to close at 5.68%. The Canada/US 30 year spread moved back towards neutral adding 6 basis points to close at -15 basis points.
The North American equity markets were knocked down significantly on the week, experiencing the worst melt-down since January. Stocks were hit by a series of disappointing earnings reports on both sides of the border. Everything from resource based mining and forestry to high-tech communications and electronics firms posted weaker than expected earnings. The banks and financial sectors were knocked down on economic and interest rate uncertainty, while companies like BCE and Boeing were hurt by disappointing earnings related to subsidiary operations out of Asia. Boeing reported that two major Asian airlines were going to delay delivery on up to 12 planes.
As a result, the TSE lost 3.34%, or 247.73 points, at 7170.58. The DJIA lost 4.29%, or -400.61 points, to close the week at 8,937.36. The Nasdaq managed to post one more record high close Monday, before giving up 3.87% on the week. The Canadian dollar has set 11 record low closes versus the US dollar over the last 12 trading sessions, so do not look for Canada to be the lead steer on any up ticks.
Next week will see an early close in Canada on Friday for the civic holiday weekend, with the markets remaining closed the following Monday as an extra day is tacked on for good measure. Look for some volatility in Canada in thin volume markets. Good trading.
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